Michigan's Competitiveness Depends on Defined Benefit Reform For Teachers

Michigan stands at the threshold of pivotal reform that could easily save its taxpayers $10 billion by the end of this decade.

The state Senate has already acted in support of legislation that would close the chronically underfunded "defined benefit" school pension system to new employees starting in 2013. Indications are that Gov. Snyder would support this. Current public education employees would still be covered under the existing system.

This transformational reform would be wholly consistent with a 1997 measure that did the same for new state employees, providing them with a 401(k) "defined contribution" pension plan. (Public school workers were not included in the 1997 reform, although Gov. John Engler had tried to do so.) 

Such reforms are essential if Michigan's public sector is ever to achieve an economic status consistent with real-world dynamics, and if our state ever hopes to have a public sector whose compensation and benefit costs are affordable to taxpaying firms and individuals across Michigan's private sector.

Bond and credit ratings for Michigan and its local units of government will improve once this reform is enacted. This is because, as years roll by, it adds predictability, transparency and financial viability to public employee "legacy costs."

Financially and economically, this reform legislation is an essential measure for restoring Michigan to nationwide pre-eminence.

David L. Littmann is senior economist with the Mackinac Center for Public Policy, He retired from Comerica Bank in early 2005 as senior vice president and chief economist after a 35-year career in charge of Comerica’s Economics Department and Research Library. He also served as chairman of the Economic Advisory Committee of the American Bankers Association in Washington, D.C., where he met regularly with governors of the Federal Reserve Board.